Comment

04.07.16

Urbanisation: driving rail investment

Source: RTM Jun/Jul 16

Patrick Groarke, head of industrial sector at Livingstone, looks at how urbanisation is fundamentally driving demand for rail in the capital, and why this is providing a supportive environment for both strategic acquirers and financial investors.

UK rail has seen an active start to 2016 in terms of mergers and acquisitions activity, with two private equity houses making new investments in the sector. 

The fact that the sector has continued to provoke acquirer and investor interest against the background of ongoing debate over high-profile projects, such as HS2 and the findings of the Hendy Review, is testimony to its strong fundamentals. Both financial investors and strategic acquirers are attracted by structural growth driven by urbanisation, and, of course, the relative strength of the UK economy. 

Whilst many in the developed world would regard urbanisation of their societies as a 19th and 20th century phenomenon that is now largely complete, in reality this transition is multi-dimensional and is far from exhausted. The classic migration from rural to urban employment and residence in developed countries continues at a moderate pace even today. In the UK, from 2004 to 2014, the urban share of population grew 3%, which may not sound dramatic but represents the relocation of nearly two million people into towns and cities.  

In parallel the proportion of the urbanites living in cities rather than towns grew significantly faster. From 2004 to 2014, the population of the five largest cities in the UK grew 14%, whilst the urban population grew 11%, and the population as a whole grew only 8%, according to the ONS.  

This concentration of the urban population in large cities is set to continue, both in the UK and globally. Over the next 20 years London is projected, by the ONS, to grow almost 70% faster than the overall population of the UK.  

City living reliably drives demand for rail 

For the rail industry, this migration towards urban – and particularly city – living is a dependable driver of growth in passenger volumes, as the higher population density of urban environments favours public transport, particularly rail. City dwellers are dramatically more likely to use rail transport regularly; half of Londoners commute to work by public transport, a proportion more than three times higher than the rest of the UK. 

Outside the capital, recent investments in rail infrastructure such as the Tyne & Wear Metro and the Nottingham Express Transit have driven significant local increases in commuter rail traffic. 

Structural growth drivers attractive to financial investors 

These structural drivers of growth in rail traffic – and hence both revenue and capital spending on rail networks – provide a supportive environment for both strategic acquirers and financial investors, whose decisions are primarily predicated on medium- and long-term views of the attractiveness of a market opportunity, rather than the short-term considerations of the planning and budget cycles. 

Recently, we have seen two overseas strategic buyers – Ricardo and SNC Lavalin – choose to acquire high-quality international businesses, based in the UK, serving the rail market; decisions driven by both the positive domestic market outlook and growth opportunities internationally. 

In the case of Ricardo, a significant component of the motive to buy Lloyd’s Register Rail was to secure market-leading expertise and capability that could be applied across a multi-national business. In acquiring Interfleet, SNC Lavalin gained a business that had already developed a significant international platform, which it saw the potential to both grow and integrate with a broader range of services. 

Private equity houses have also shown renewed interest in the UK rail industry, with three meaningful investments in the rail services sector completed over the last year. The most recent of these, LDC’s investment in TXM Plant, an operator of road rail vehicles, is their second deal in the sector in 12 months, following their 2015 investment in Aspin Group, a specialist in piled foundations.  

Positive long-run structural trends in the distribution of population and modes of transport make the UK rail industry attractive to strategic acquirers, both domestic and overseas, and private equity investors. Despite the inevitable political uncertainties of the sector, deals are getting done and high-quality businesses are achieving attractive valuations – recognition of market-leading expertise in the UK rail industry.

Tell us what you think – have your say below or email opinion@railtechnologymagazine.com

Comments

There are no comments. Why not be the first?

Add your comment

 

related

rail technology magazine tv

more videos >

latest rail news

View all News

rail industry focus

Doncaster area could be turbo-charged by new Integrated Rail Plan

26/07/2019Doncaster area could be turbo-charged by new Integrated Rail Plan

Wide ranging improvements to rail services ar... more >
Your chance to meet Midland Metro Alliance executives at TCR Midlands event

01/07/2019Your chance to meet Midland Metro Alliance executives at TCR Midlands event

Director of the Midland Metro Alliance, Aleja... more >

editor's comment

23/01/2018Out with the old...

Despite a few disappointing policy announcements, especially for the electrification aficionados amongst us, 2017 was, like Darren Caplan writes on page 20, a year generally marked by positive news for the rail industry. We polished off the iconic Ordsall Chord (p32), hit some solid milestones on Thameslink (p40), progressed on ambitious rolling stock orders (p16), and finally started moving forward on HS2 (p14) ‒ paving the way for a New Year with brand-new infrastructrure to... read more >

last word

Encouraging youngsters to be safe on the railway

Encouraging youngsters to be safe on the railway

This summer, Arriva Group's CrossCountry and the Scout Association joined to launch a new partnership to promote rail safety among young people. Chris Leech MBE, business community manager at the TOC, gives RTM an update on the innovative scheme. Recognising that young people are more likely to take a risk trespassing on railway tracks, C... more > more last word articles >

'the sleepers' daily blog

Network Rail’s Anna-Jane Hunter on, NPR, TRU, HS2 and supply chain opportunities

12/08/2019Network Rail’s Anna-Jane Hunter on, NPR, TRU, HS2 and supply chain opportunities

Anna- Jane Hunter, is a ‘proud northerner’ and is passionate about continuing the investment and success story of rail across the North.  She plays a key role in working with government and northern leaders to enable the network to carry on thriving. We caught up with Anna-Jane, for her expertise and insight into connecti... more >
read more blog posts from 'the sleeper' >

interviews

Andrew Haines, CE of Network Rail, tells BBC News his organisation could issue future rail franchises

24/06/2019Andrew Haines, CE of Network Rail, tells BBC News his organisation could issue future rail franchises

Andrew Haines, the Chief Executive of Network Rail, has told the Today programme on Radio 4's BBC’s flagship news programme that he wo... more >
Malcolm Holmes, executive director of West Midlands Rail Executive, announced as TCR Midlands speaker in Birmingham

24/06/2019Malcolm Holmes, executive director of West Midlands Rail Executive, announced as TCR Midlands speaker in Birmingham

Ahead of his appearance, Malcolm Holmes spoke with Rail Technology Magazine about what key leaders in the industry were doing to improve rail in ... more >
Advancing the rail industry with management degree apprenticeships

08/05/2019Advancing the rail industry with management degree apprenticeships

In answering the pressing questions of how current and future generations of managers can provide solutions to high-profile infrastructure projec... more >
Women in rail - is the industry on the right track?

12/03/2019Women in rail - is the industry on the right track?

RTM sits down with Samantha Smith, sole female member of the TransPennine Route Upgrade Alliance Leadership Team, to find out more about encourag... more >